Forex Flash: ECB expected to cut rate by 25bp today and to suggest more in June – TD Securities

FXstreet.com (Barcelona) - Market focus for today is the ECB interest rate decision, and while TD Securities analysts expect a 25bps refi rate cut, and this seems to have been well telegraphed by Draghi suggesting it was data dependent at last month’s press conference, it is still not a slam dunk decision: “We remain very uncomfortable, given when all is said and done, it will likely mean little for the economy so the ECB is actively looking for other options, which makes handicapping market reactions difficult”, wrote analyst Alvin Pontoh, adding that if the rate cut can improve sentiment, or via reduced LTRO funding costs create incentives to buy peripheral debt, “then we could see a peripheral rally, but core rates risk moving higher if there is no suggestion of a deposit rate cut or more action to come”.

Pontoh sees reducing haircuts on collateral as possible, but a broad move across collateral seems unlikely. “There has been talk of targeting via this method or something new to get liquidity and credit support to SMEs, but as in the UK, we question the effectiveness”, he continued, expecting some sort of easing (the 25bps refi rate cut) while leaving a message that more easing in June is likely.